When free money isn't

WE'VE BECOME a nation charmed by offers that something might be free. Especially when it comes to credit.

Many consumers will receive offers as they shop for the holidays. Professionals call these promotions "deferred-interest plans." But more commonly the advertising may say something like: "No interest for 18 months" or "0 percent interest for 12 months."

This is credit with a catch. And if you are caught, it's expensive.

The no-interest deals involve getting a credit card on which your purchases will be charged. During the promotional period, interest is accruing but you won't be charged if the balance is paid in full by the deadline. Don't meet that benchmark and you could have to pay all of the deferred interest.

For borrowers with subprime credit scores, 43 percent ultimately are charged retroactive interest, according to the Consumer Financial Protection Bureau.

CardHub, a credit-card-comparison website, has issued a report about the trickiest deferred-finance offers. The site says that one-half of the major retailers that provide financing offer a deferred-interest plan.

If you're going to use a deferred-interest plan, here are some things you should be aware of, according to the CFPB:

* Know when you owe. The credit-card company has to be clear about the date by which you must pay off your balance to avoid being charged deferred interest. It has to be disclosed separately during the deferred-interest period and labeled in a way to make it clear that it's your deferred-interest charge.

* Read the fine print carefully, because if you pay late or leave an unpaid balance of even $1 at the end of the promotion period, interest will be retroactively applied to your entire original purchase amount.

In its report, CardHub said 29 percent of retailers that offer a deferred-interest plan scored low on the transparency scale because they bury information in the fine print. CardHub found that 53 percent of retailers with deferred-interest promotions also offer consumers discounts that may be better than signing up for financing.

You may be better off utilizing a holiday discount and avoiding the credit card, which by the way could make your credit score go down. Signing up for new credit can negatively affect your credit rating.

But if you're going to use a deferred-interest plan, here are other things you should be aware of, according to the CFPB:

* Know what you owe. Pay attention to the interest rate, because life happens. If you can't pay off the balance in time, that's the rate you are stuck with. Rates are often significantly higher for deferred-interest programs than for other cards. So don't be so overconfident about your ability to pay that you ignore the interest you will be charged.

* Know your payment options. You may wait until the end of the promotion to pay off the balance or make payments along the way. But here's the thing: You now have another credit card.

Let's say you charge other items to the card. You make more than the minimum payment in an effort to pay off at least the items purchased as part of the promotion. In the last two months of a deferred-interest period, if you pay more than the minimum monthly payment, your card issuer has to allocate that money to pay down your deferred-interest purchases.

Be clear on how you want your payments allocated. Credit-card companies are not required to honor your request. Ask nonetheless. Better yet, don't put anything else on the card during the deferred period. Don't get caught up in the excitement of free money, because you could end up paying big time.